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VAT stands for Value Added Tax and is tax on expenditure. It is added to the cost of most goods and services. The standard rate is 20% for the 2023/24 tax year.

More detail:

VAT stands for Value Added Tax and is a Tax on consumption in the United Kingdom. This means that it is added to cost of the most goods and services.

There are three different tiers of VAT rates. For the 2023/24 Tax Year, the standard VAT rate is 20% and this is applicable to most goods and services. The reduced rate is 5% and is applicable to certain goods and services like children's car seats. Finally, there is the zero VAT rate and this unsurprisingly is 0%. This applies to items like food and children's clothes.

Sellers of zero-rated goods have different tax rules to sellers of VAT exempt goods, even though they technically both have the same rate of VAT. Sellers of zero-rated goods can reclaim VAT paid on the costs of producing these goods.

Businesses have to register for VAT if their VAT taxable turnover is more than £85,000 a year. Some businesses might choose to register for VAT anyway in order to claim back VAT that has been incurred through business costs.

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